FIRST-TO-DEFAULT AND SECOND-TO-DEFAULT OPTIONS IN MODELS WITH VARIOUS INFORMATION FLOWS

Pavel V. Gapeev and Monique Jeanblanc ()
Additional contact information
Pavel V. Gapeev: London School of Economics, Department of Mathematics, Houghton Street, London WC2A 2AE, UK
Monique Jeanblanc: University of Evry–Université Paris Saclay, LaMME, 23 Boulevard de France, 91037 Evry Cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2021, vol. 24, issue 04, 1-29

Abstract: We continue to study a credit risk model of a financial market introduced recently by the authors, in which the dynamics of intensity rates of two default times are described by linear combinations of three independent geometric Brownian motions. The dynamics of two default-free risky asset prices are modeled by two geometric Brownian motions that are not independent of the ones describing the default intensity rates. We obtain closed form expressions for the no-arbitrage prices of some first-to-default and second-to-default European style contingent claims given the reference filtration initially and progressively enlarged by the two successive default times. The accessible default-free reference filtration is generated by the standard Brownian motions driving the model.

Keywords: Successive default times; first-to-default and second-to-default options; geometric Brownian motion; initial and progressive enlargements of filtrations (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024921500229
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:24:y:2021:i:04:n:s0219024921500229

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024921500229

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().